Malaysia Names Zeti’s Deputy as New Central Bank Governor

  • Markets pared losses after Najib names Muhammad as new chief
  • Governor Zeti has been seen as stable figure for Malaysia

Malaysia named central bank Deputy Governor Muhammad Ibrahim as successor to Governor Zeti Akhtar Aziz when she steps down at the end of the month after 16 years at the helm. The ringgit gained and stocks pared losses.

Muhammad Ibrahim. Photographer:Goh Seng Chong/Bloomberg

Muhammad Ibrahim.

Photographer:Goh Seng Chong/Bloomberg

Muhammad has been appointed for a five-year term that starts May 1, Prime Minister Najib Razak said in a statement on Wednesday.

Zeti’s term at Bank Negara Malaysia is coming to an end at a time when investors are looking for signs of stability in a nation rocked by a political scandal and alleged financial irregularities at state fund 1Malaysia Development Bhd. She has kept monetary policy steady to aid domestic demand as Najib counts on consumers to support growth amid constraints in boosting government spending.

“This is much-needed good news for Malaysia as concerns over 1MDB had damped confidence," said Trinh Nguyen, an economist at Natixis Asia Ltd. in Hong Kong. "The rallying of the ringgit is an exhaling of relief for investors, Malaysians and watchers.”

The ringgit reversed a drop after news of the appointment, gaining 0.3 percent to 3.9135 per dollar as of 5 p.m. in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The FTSE Bursa Malaysia KLCI Index closed little changed, paring losses of as much as 0.6 percent.

Investors and analysts had been concerned Najib may name a governor who was more politically aligned to the government, compromising the independence of the central bank.

Zeti, 68, is one of Asia’s longest-serving central bank heads. She took office in 2000, two years after her stint as acting governor in 1998 amid a then-controversial move to peg the ringgit to deal with capital outflows. With a doctorate in economics from the University of Pennsylvania and known for her no-nonsense manner, Zeti had been among central bankers least likely to surprise markets.

Her successor will have to contend with a slowing economy and volatile capital flows, as well as rebuilding reserves that are about 30 percent below a high seen in 2013. Growth is forecast to reach 4 percent to 4.5 percent this year, down from 5 percent in 2015, while inflation is projected to accelerate from a year ago.

Najib said on Tuesday that the country faces an "uphill battle" over the next five years in its plan to become a developed nation.

Policy Continuity

“I’m confident that under his leadership, Bank Negara Malaysia will continue assisting the government with advice to further strengthen Malaysia’s economy, as well as managing monetary policy, and regulating and developing the financial services industry,” Najib said of Muhammad.

Muhammad, who was born in 1960 and has a master’s degree from Harvard University, joined the central bank in 1984 and had been deputy governor since June 2010. He oversees international reserve management, and money market and foreign exchange operations. He has served in areas from banking supervision and regulation to insurance and offshore banking.

He was managing director at Danamodal Nasional Bhd., a bank recapitalization agency created under the auspices of Bank Negara during the Asian financial crisis in the 1990s.

“Given that it’s an internal appointment, we should expect a continuation of
policy that’s been set by Zeti," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. "Overall, this is a market-friendly appointment.”

Currency Volatility

The ringgit has rebounded about 10 percent this year to be Asia’s best performer, as a rally in crude prices eased concern about the finances of the oil-exporting nation. Foreigners have been net buyers of Malaysian stocks for 10 straight weeks.

Appointed by former Prime Minister Mahathir Mohamad, who rejected the notion of an independent central bank, Zeti won more powers and autonomy for Bank Negara during Najib’s premiership with a mandate to ensure financial stability. 

That goal was tested last year with the ringgit tumbling 19 percent against the dollar, in part after a multi million-dollar political funding scandal involving Najib came to light and investors grew wary of risks posed by 1MDB.

The reputation of the government took another hit Tuesday when 1MDB defaulted on a $1.75 billion bond amid a dispute with Abu Dhabi’s International Petroleum Investment Co., the co-guarantor of the bonds. The missed payment triggered cross defaults on 7.4 billion ringgit ($1.9 billion) of 1MDB debt, including borrowings that are guaranteed by the Malaysian government.

Zeti had been uncharacteristically blunt in her criticism of 1MDB and the central bank had urged criminal proceedings at least twice against the company. The attorney general’s office dismissed the recommendations as it concluded there was no wrongdoing. Najib chairs the advisory board of 1MDB and has faced calls to resign as premier over alleged mismanagement at the fund.

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